South Korea Economy Facts
Through extensive industrialization, high savings, large investments and export-based growth, South Korea has developed into one of the world’s leading economies. But in recent years, the economy has lost momentum, partly due to reduced domestic consumption.
Few countries have made such a leap from widespread poverty to fully developed industry as quickly as South Korea. As early as 1996, the country was able to join the developed countries’ cooperative organization OECD, and South Korea is considered by the IMF as one of the world’s “advanced economies”.
- Countryaah.com: Major imports by South Korea, covering a full list of top products imported by the country and trade value for each product category.
During this development, private enterprise has been directed by five-year plans in South Korea’s mixed economy. Among other things, through tightly controlled loan policies, companies have been driven towards the overall goal of increasing export production, with industry as the fastest growing industry. The huge industrial associations, chaebol, have served as the engine of the economy, but the lack of competition has hindered business renewal and concentrated the loan capital to business groups such as Hyundai, Samsung and LG (see Industry).
At the end of the 1990s, four decades of high growth were broken. In 1997, South Korea was hit by the Asian financial and currency crisis and entered the most severe economic crisis in the country’s post-war history.
Repeated bankruptcies burdened the banks, the need for loans increased and interest rates rose, while foreign investment was withdrawn, home consumption fell and the currency, won, collapsed in value. South Korea was on the brink of bankruptcy when, during the Christmas holiday of 1997, the country was forced to accept the terms of the largest loan and aid package paid by the IMF to date: $ 58.4 billion. Not only the IMF contributed to the loan, but also a number of countries, including Sweden. The counterclaims were, among other things, reduced budget deficits, lowered inflation, liberalization of the economy and less power and greater transparency in the giant companies. In the wake of the tightening, bankruptcies for small businesses and mass redundancies from the big companies followed, a hitherto unknown phenomenon in South Korea. In 1998, GDP fell by about 6 percent and unemployment reached a record high of 8 percent.
- Abbreviationfinder.org: Check this abbreviation website to find three letter ISO codes for all countries in the world, including SKR which represents the country of South Korea. Check findjobdescriptions to learn more about South Korea.
In 1999, there was a real recovery in the economy, with increased demand abroad and at home, and growth of over 10 percent. In 2001, South Korea was able to repay the IMF loan.
There were also long-term problems behind the acute causes of the crisis. South Korea had lagged behind in switching to high-tech production, and rapid wage increases in the 1990s had moved competitiveness to low-wage countries such as China and some of the states of Southeast Asia.
A significant problem was the close and often corrupt links between government, banks and large corporations (chaebol). Large loans went to companies that were market-driven. The regulations for the companies were bureaucratic and foreign investors were discouraged. President Kim Dae-Jung’s (1998–2003) attempts to reform the large business complexes and make them less dependent on loans found little success. The opposition in business and political opposition was strong. Even during President Park Geun-Hye (2013–2016), attempts were made to break the dominance of large business groups through various forms of support to small businesses without leading to any profound change. At the end of the 2010s, the Liberal administration under President Moon Jae-In has also reformed the big corporations and the system that favors them as one of their main goals.
Exports are an important engine of the South Korean economy and South Korea is one of the world’s largest exporting countries. Since the financial crisis, the country has sought to open up and further liberalize its trade. South Korea has since the first half of the 2010 trade agreements with both the EU and the US as well as with China.
Information and communication technology products such as data chips, LCDs and mobiles have become increasingly important for South Korea’s exports. Trade since the first decades of the 2000s has shown a considerable surplus that has risen in recent decades.
The United States has long been South Korea’s largest export market, with Japan in second place. But in 2003, China became South Korea’s leading export market. Imports from China have also grown at the same time as South Korean corporate investment in China has increased strongly. Despite its political disputes, South Korea, China and Japan have been negotiating a joint free trade agreement since 2012.
In 2001–2008, annual economic growth averaged over 4 percent. In the wake of the global financial crisis at the end of 2008, the currency collapsed in value, and banks and companies had problems with their foreign loans. The state then assisted with loans in foreign currency and provided funds for crisis companies. However, the economy recovered relatively quickly and in 2010 it grew by over 6 percent. But in the following years, growth of and during the second half of the 2010s stopped at an annual average of around 3 percent.
An important reason for mediocre growth in recent years is the low domestic consumption, which in turn is linked to the weak development in the labor market. For a long time, high youth unemployment has been a growing problem. Households are also highly leveraged, which is another factor that dampens South Koreans’ willingness to open their wallets.
At the end of the 2010s, the government tried a new strategy, “income-generated growth”, to accelerate growth and consumption. The government introduced a comprehensive stimulus package that included various measures to create jobs, but also increased contributions to maternity leave and health care for the elderly. The measures were largely financed by tax revenue. At the same time, the minimum wage was also increased, while the state budget for 2018 included investments in job creation and increased social contributions.
The government has also tried to overcome the high indebtedness of the South Koreans by tightening the regulations on borrowing.
The South Korean economy’s dependence on trade with the outside world and the importance of some individual industries, in particular the production of high-tech products, make it sensitive to external changes such as trade wars or reduced demand in the outside world.
READING – read more about Korea in the UI’s online magazine Foreign Affairs magazine :
Hard tug of war on economic policy in South Korea (2019-05-29)
FACTS – FINANCE
GDP per person
US $ 31,363 (2018)
US $ 1 619 424 million (2018)
2.7 percent (2018)
Agriculture’s share of GDP
2.0 percent (2018)
Manufacturing industry’s share of GDP
27.2 percent (2018)
The service sector’s share of GDP
53.6 percent (2018)
0.5 percent (2019)
Government debt’s share of GDP
37.9 percent (2018)
South Korean won
Assistance per person
– US $ 1 (1999)